Prohibition
By : Juliet D. Golden
Last orders were called for many Polish brewers last week when Aleksander Kwasniewski signed the highly contentious Sobriety Act.
The latest version of the bill, passed by the Sejm and Senate in March after weeks of explosive debates, will severely curtail beer advertising once it becomes law as early as September. The law will ban TV ads for beer between 6 a.m.-11 p.m. and stop billboard (see story, page S6), movie and some magazine campaigns altogether.
While only diehard idealists counted on a presidential axing of the bill, now that the signature is a done deal, brewers have begun a three-month countdown to grab as much market share before the ad blackout comes into force.
"It's been pretty obvious in the past weeks or months that the president would sign the law, so we aren't really that surprised it finally happened," said Pawel Kwiatkowski, public affairs manager at Kompania Piwowarska brewer of Poland's No. 1 beer in terms of sales, Tyskie Gronie. "But this is the last season for advertising."
The signature coincides not only with the revving up of the summer beer season, but also comes at a pivotal moment in the race for domination between the two market giants Heineken's Zywiec Group and South African Breweries' (SAB) Kompania Piwowarski. Together the two companies split nearly 60% of the market. In the beer industry, bets are now being placed on who will pull ahead in the race for domination and when.
But the Zywiec-Kompania race is not the only saga pushing the market forward. In the leviathans' shadows, another decisive battle is underway between Austria's Brau-Union and Denmark's Carlsberg for the only place left on the podium. Here, the key to success is not only how well marketing campaigns spur sales, but more importantly, who acquires what.
Ripe for the taking is Wroclaw's Piast, which controls more than 3% of the market. Whoever gets Piast the Austrians or the Danes is not only awarded the undisputed bronze medal in the beer race, but also crosses the crucial 10% mark in terms of market share.
"As a matter of fact, this season will be the final one during which many things will be decided," Kwiatkowski said. "(One of these) will be market share."
A sign that the stakes are indeed high is the dramatic increase in the amount of money being poured this spring into beer advertisements on TV, radio and in the press. According to media house Starcom, in the first four months of the year media spending has nearly doubled from zl. 51 million ($12.7 million) in January to zl. 91 million ($22.7 million) in April. "The growth is huge," said Jakub Benke, managing director of Starcom.
However, Benke is quick to warn against drawing hasty conclusions tying the spending hikes to the advent of the ad ban. Rather, the increases are probably best attributed to the implementation of new campaigns long in the works by mid-size and smaller breweries fighting for market share. At most, the ad ban may contribute to increased spending because companies this year will have a shorter period of time to spend their marketing budgets before the new rules come into play in September.
"It's clear that (companies) had activities planned before, but they may have increased the weight of these to some extent," Benke said. "For example, if they had a budget to the end of the year, originally they may have wanted to spend 70% before August and now they want to spend 90% of it."
In general, beer makers are high-buck advertisers and the annual figures have grown dramatically in recent years. Expert Monitor reports that last year beer companies spent zl. 224 million ($56 million) on television, radio and press advertising, an increase of 56% over 1999, not taking into account discounts that can run 30-50%. In 1999, beer companies paid zl. 127.6 million ($32.5 million) for advertising.
Pac men
Regardless of the reasons for the hikes in expenditures, for the beer producers themselves increases in market share remain the name of the game. In particular for the two giants, Zywiec and Kompania, the company that gobbles up the biggest piece of the pie this year could end up being the long-term winner on the market.
Since last year the gap between the two companies' hold on the market has narrowed to such an extent that the two companies are breathing down each other's necks and analysts admit that the outcome is increasingly less predictable.
While in 1998, 21 percentage points separated the two companies (Zywiec commanded a 39% market share compared to Kompania's 18%), by last year only three percentage points separated the two companies, according to CDM Pekao brokerage house. In August last year, the Zywiec Group had 31% of the market. But Kompania was not far behind, claiming a 28% share.
This year the battle for No. 1 might end up changing on a month-by-month basis.
"We are trying to close the distance between us and the Heineken group," Kwiatkowski said. "There are some months when we have been ahead of them and sometimes they are ahead of us. Usually we're talking about a half percentage point difference."
Largely due to Kompania's advances during the past three years, some market watchers are betting that this year they may pull ahead.
Chiefly in Kompania's favor is its hold on the No. 1 and No. 3 selling beers: Tyskie Gronie and Lech.
Freshening up
For its part, Zywiec Group officials said they are at the tail end of a three-year restructuring plan, which will start bearing results and allow the company to begin improving performance and reopen the gap with its chief competitor.
"This is the last year of the consolidation process and we can see the first signs of this process," said Krzysztof Rut, manager for corporate affairs at the Zywiec Group.
In addition, in April, the company launched a new brand, Warka Jasne Pelne, which company officials say is doing well for its overall portfolio.
"The brand is doing extremely well," Rut said. But he declined to give exact figures to back the claim. "A month is not enough time to give a good interpretation of the results, (however), we are very happy with the development of this brand."
Some argue that strong Warka sales may already be chipping away at Tyskie Gronie's strong standings. "We Poles always like to have something new to try," said Bogna Sikorska, an analyst at CDM Pekao. "After the first month, you can see that the popular Tyskie Gronie brand is starting to lose customers. Customers need something new."
Kompania's overall April sales were down by about 9%, compared to the same month last year, but without elaborating Kwiatkowski called the results "an accident."
"The distance between us and Heineken is getting smaller and smaller, except for April, which was very bad for us," Kwiatkowski said. "I wouldn't like to say more because we always try to take a long-term perspective."
In the first four months of this year, Kompania's sales increased by 10.3% over the same period last year when the company sold 1.8 million hectoliters of beer. In contrast Zywiec Group's sales were up by 5.6%. In the first four months of this year, the brewer sold 2.1 million hectoliters.
Jockeying for position
While the race for No. 1 is still up in the air, many industry officials argue that the market leader may depend less on the No. 2 player, but the overall competition for who will come in third.
Okocim at the moment appears to be the favorite for third place. So far company sales are up by 28% in the first four months of this year to 428,000 hectoliters, mainly due to a strong advertising campaign launched last year for its Mocne brand and the successful introduction at the end of March of a new beer, Okocim Premium.
"The negative trend has been broken," said Wlodzimierz Czausow, spokesman for Okocim. "For the fifth month in a row we have had an increase in sales, an increase in market share and I hope that that will remain that way."
Czausow said May sales are up by 7.5% from 162,000 hectoliters sold in April.
Okocim has now slipped past its main competitor, Austria's Brau-Union (SP), which holds 6.5% of the market.
However, last month the Interior Ministry granted Austrian brewing group Brau Union permission to acquire a majority stake in Browary Warszawskie, bringing the number of plants the company controls to three. Brau Union will reportedly pay zl. 165 million ($41.3 million) for the stake. This latest acquisition means the company is serious about Poland and determined not only to grab third place but also to break the 10% market share barrier.
But which brewery passes 10% first could depend on who gets hold of Piast. Earlier this month, Okocim and Carlsberg had planned to make an announcement that the sale agreement was final. While beer industry officials think the deal should be clinched by the end of June, a lack of a signed deal means all is not done as far as Piast is concerned.
"I think there is still some discussion going on," said, Andrzej Dlugosz, a beer industry spokesman with Cross Media PR agency. While Dlugosz is betting on Okocim, until the final announcement is made Brau Union or even Kompania could make their own moves on Piast. "Okocim, Brau Union and Kompania Piwowarska are the three competitors trying to get Piast," Dlugosz said.
The deal is pivotal for both Okocim and Brau Union. "The one who gets Piast will be No. 3, a strong No. 3," Dlugosz said.
Storm clouds
While international giants such as Heineken, SAB, Carlsberg or Brau Union are plotting their expansion in Poland, all is not well for the beer sector. The advent of the Sobriety Act not only threatens growth by limiting market contacts with customers, but another excise tax increase slated for the beginning of this month could herald a slowdown in consumption, industry officials said last week. If the Economy Ministry opts to hike rates, it will bring to 18% the total excise tax increase in the beer industry this year.
For brewers like Okocim, the combination of the new law and tax hikes threatens to hit the bottom line. Particularly hard hit is its low-alcohol brand Karmi, which commands 75% of its market. With 1.5% alcohol content, under the old law Karmi was not subject to excise tax. Under the new sobriety act, any beverage with a 0.5% alcohol content is subject to excise duties.
The new taxations will undermine Karmi's dominant position, Czausow said. "Okocim Premium is priced at just over zl. 2 for a half-liter bottle and Karmi costs zl. 1.30, because it does not include excise tax right now," he said. But "who's going to pay zl. 2 for something that cost zl. 1.30?" he added.
The excise tax threatens a slowdown in the growth of the beer industry as a whole, Dlugosz said. While the sector grew at a rate of 7.8% last year, with the new restrictions, he said that if the sector achieves a 4% growth rate in 2001, that would constitute good news.
"You have excise duty, the advertising ban and on top of that, hops' prices have more than doubled," Dlugosz said. With these increases, "4% would be perfect," he said.
